TODAY we embark on a two-article series which looks at the Ministry of Commerce, Trade and Industry manufacturing sector report of 2011 to 2012.
We will consider the constraints to the manufacturing sector and highlight one of the successful stories of the manufacturing companies.
A look at the Zambia Business Survey, Profile and Productivity of Zambian Businesses of June 2010, reveals the low levels of competition that allowed large firms that were not producing at optimum levels to thrive.
A further look at the Ministry of Commerce, Trade and Industry manufacturing survey report of 2011- 2012 reveals that large firms were thriving despite low labour productivity because they faced limited competition from other domestic and foreign companies.
Without pressure from competitors, these firms enjoyed large market shares within their product niches and were offsetting the higher production costs by charging their customers higher prices.
Lack of competition within the formal sector has an adverse effect on the rest of the economy that sources from these firms; the net effect is an overall high-cost economy.
Limited competition among formal sector producers was due to various business environment problems that deter entry of foreign and domestic firms.
The costs of production include cost of finance, which has remained high relative to most Sub-Saharan African countries due to the fluctuating of the Kwacha caused by dependence on copper, among other factors.
The 2011-2012 report on productivity of manufacturing enterprises assesses the extent to which the policies, strategies and programs impacted the productivity of the manufacturing sector.
The key assessment indicators of competitiveness are productivity (or efficiency), product Quality and Innovation. These, according to United Nations Industrial Development Organisation (UNIDO), determine the marketability of a product.
In business terms, high efficiency in production is achieved when a product is created at its lowest average total cost.
The cost of production is a key determinant in the pricing and concomitantly the competitiveness of a product.
In this respect, maintaining highest possible levels of efficiency in manufacturing is imperative for sector’s growth.
Utilisation, labour efficiency or productivity, and economic efficiency are indicators which have a direct bearing on the price at which a manufactured product is fixed.
Though optimal efficiency is the goal for both policy makers and industrialists, studies reveal that utilisation below the maximum typically prevails, regardless of economic conditions.
The Average capacity utilisation in the manufacturing sector for the period 2006 t0 2010 was as follows: 2006: 53 per cent, 2007: 54 per cent, 2008: 53 per cent, 2009: 53 per cent, 2010 : 66 per cent The average capacity for the manufacture of articles of cement and plaster was 66% in the period 2006 to 2010.
We have noted that Zambia has since 2006 aspired to graduate from low income status to the prosperous middle income category.
The implication is that its manufacturing activities should continuously reflect efficiency driven manufacturing activities.
This is because in contrast, resource-based manufactures involve relatively low value addition and also make exporting countries highly vulnerable to external price shocks.
Further, natural resource-based sectors exhibit lower productivity growth and have few linkages with the rest of the economy.
In sum, resource based manufactures show only very limited product differentiation and thus share several characteristics of commodities.
Additionally, the Zambia Business Survey report of 2010 outlined some of the main obstacles to doing business in Zambia. Among them is cost of electricity and access to finance.
The manufacturing survey report further reveals that by 2010, Zambia had been transformed into a lower middle income country and should now be characterised by a growing manufacturing sector and reduce imports.
We can also add on and say that one of the critical factors hampering the growth of the manufacturing sector in Zambia has been the over-dependency on one source of electricity power to drive industrial activity.
It is an open secret as a result of most manufacturing firms not considering alternative sources of power the cost of production has continued to rise.
This cost of production is eventually passed on to the customer in form of high and uncompetitive prices.
In conclusion, we can say that the above mentioned survey reports have revealed a number of factors hampering the growth of the manufacturing industry.
Significant paradigm improvements in production technology and innovation can induce notable growth.
There have been increasing expectations on the government to foster growth in the manufacturing sector.
Recent developments in the cement manufacturing industry suggest that paradigm strategic shifts that could lead to major growth in the sector could be also be driven by the private sector as has been the case with one of the companies which will look at next week.
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The author is the managing consultant at GN Grant Business Consultant, a Chartered Certified Accountant, a Master of Business Administration (MBA) holder and a candidate for the Herriot Watt University (Scotland) Doctor of Business Administration (DBA).